California is one state where trusts are popular and very useful. The house that many older residents bought for a song many years ago is now worth a fortune, bringing the couple into the range of "looking forward" to estate taxes after their death. A trust set up and funded now would shelter twice the present $675,000 limit.

You have the added advantage that you live in a community property state. When the first of you dies, the basis of ALL your assets that are held in community property goes up, not just the assets of the deceased. With a trust, at that time, an accountant can help you choose (presently) $675,000 (growing to $1 million in a few years) worth of assets to put into the deceased's "B" trust. The remaining assets go into the survivor's "A" trust at a stepped up basis. This is a WONDERFUL advantage, as it allows the survivor to sell any assets, including the home, without capital gains tax, and reinvesting assets in a manner now appropriate for the survivor. In non-community property states (most of our states), only the deceased's 1/2 of the assets receive a stepped up basis. This is why people living in community property states choose a "Living Trust" instead of separate trusts.

Avoiding probate is only one of the reasons to have a trust. The trust also designates sucessor trustees, who will administer your assets according to your wishes should you become incapacitated (a will doesn't do this - an executor of a will doesn't have any powers until you die.) Your trust designates how you want the trustees to treat your assets. You can be the trustee as long as you want, and when managing your assets becomes a burden, a one page resignation as trustee moves care of your property to your sucessor trustee.

I am sucessor trustee to my aunt's California trust. She is senile, and resides in a nursing home. With her health Care Proxy, I take care of her physical needs. As trustee, I invest her assets to provide for her continued support, and as trustee of her deceased husband's B trust, I invest his assets for the benefit of beneficiaries.

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